If someone offered you 10% for a down payment, would you take it? “Absolutely,” you say. Well, most people overlook thousands of dollars available to them—because they don’t know to apply for it.
There are 2,290 down payment programs across the country waiting for home buyers to apply for funds, according to a joint analysis recently issued by RealtyTrac, a real estate data provider, and Down Payment Resource, a purveyor of home-buyer assistance programs. The average amount of down payment assistance per buyer is $11,565, according to the analysis.
“It’s important for buyers to research down payment programs as part of their loan shopping process,” said Rob Chrane, president and CEO of Down Payment Resource. As a former Realtor® turned mortgage lender turned entrepreneur, Chrane started DPR to help bridge the gap between these programs and the home buyer.
The problem is, few people know his company exists—let alone that there is money out there to help them become homeowners.
“There’s a lot of missed opportunities here,” he said.
Of the 78 million single-family homes and condos in the United States, more than 68 million, or 87%, would qualify for a down payment program, according to the report. Of course, not all of those houses are on the market. The report looked at parcels and matched them with county-, state-, and federal-level assistance programs.
In each of the 3,143 counties in this country, there is a down payment program available, according to the report.
“Consumers do not know about these programs, and those that do assume it’s more difficult to get than it is,” said Jonathan Smoke, chief economist at realtor.com®.
The housing market is in the midst of recovery from its 2009 collapse. Houses are selling and prices are rising. Yet first-time buyers are largely absent from the recovery. Historically, they make up 40% of annual sales, according to the National Association of Realtors®. Last year, however, they accounted for 33%, the lowest level since 1987.
For many would-be buyers, saving for a down payment is a known barrier to entry. According to a sample of more than 900 randomly selected visitors to realtor.com in January, 12% said they lacked enough funds for a down payment. That proportion more than doubles to 26% of those who identify themselves as first-time buyers, according to Smoke.
“More than half the interested buyers in our agents’ pipelines are more concerned with pulling together today’s required down payment than meeting the income-to-debt ratio requirements,” said Mark Hughes, chief operating officer at First Team Real Estate in Irvine, CA.
Shad Bogany, past chairman of the Texas Association of Realtors® and a licensed Realtor, blames the industry.
“When buyers come into the market, if they get with the wrong lender or the wrong agent, they won’t find out about these programs,” he said. “Some banks have portfolio products, but you would never know about it because nobody advertises it.”
In Houston, upper-tier houses are selling at a record clip. Home sales achieved record highs on the back of record low inventory, according to the Houston Association of Realtors®. Last year, the median price of a single-family home rose 10.6% in Houston driven by houses priced at $250,000 or more.
“If you’re buying on the high end, we’re selling those left and right,” said Bogany. “There’s not a lot of people looking out for that first-time home buyer.”
Home-buyer programs are usually administered by nonprofit organizations with limited budgets for advertising. In this fragmented marketplace of grants, tax credits, and reduced mortgages, there are more than 1,100 program providers, said Chrane. What’s more, any given marketplace may have dozens of providers.
‘Millennials are the key’
If first-time buyers, particularly millennials, took advantage of these programs, Chrane said the housing market would see a boost in sales.
“Millennials are the key to the recovery,” said Smoke. “If Realtors want the market to grow 8%, they have to work harder to support the first-time home buyer.”
While there will always be critics of any program that reduces the down payment requirement or provides funding assistance to qualify for homes, Smoke says that betting on qualified first-time buyers offers little risk. Most millennials—those aged 25 to 35—are employed and earning high incomes but lack the “wealth” or savings necessary to buy a home, he said. They are saddled with student loan debt but aspire to be homeowners.
Resources for buyers
That means Realtors and lenders alike need to research and understand various funding resources for buyers. Major program types include the following:
- Below-market interest rate loans or 100% financing
- Mortgage credit certificates that provide up to $2,000 in annual tax credits for the life of the loan
- Neighborhood Stabilization Program loans and grants designed to revitalize communities